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portefeuille (99.60)

Ellipsis

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51

June 26, 2009 – Comments (80)

okay, now that my last post has followed its chaotic nature to the point that it is now more or less unintelligible I will try to make life easier for those interested. camistocks and binve showed me how do do the image thing and anchak suggested spline interpolation, so by virtue of their assistance and some improvements I added here it is.

s&p rally of march 2009 (green) vs. nasdaq 100 rally of january 1987

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80 Comments – Post Your Own

#1) On June 26, 2009 at 1:36 PM, portefeuille (99.60) wrote:

is now more

is more

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#2) On June 26, 2009 at 1:45 PM, portefeuille (99.60) wrote:

come on guys. my (number of recommendations)/(number of comments) ratio is usually around 1/5, even after you take out comments made by me.

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#3) On June 26, 2009 at 1:46 PM, portefeuille (99.60) wrote:

(and I don't like division by zero errors)

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#4) On June 26, 2009 at 2:04 PM, russiangambit (29.29) wrote:

ok, so how did the story end in 1987? I am not old enough to remember.

 

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#5) On June 26, 2009 at 2:21 PM, portefeuille (99.60) wrote:

ok, so how did the story end in 1987? I am not old enough to remember.

it continued the rally for around 11/2 months and then turned into a crash 1987.

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#6) On June 26, 2009 at 2:22 PM, portefeuille (99.60) wrote:

it continued the rally for around 11/2 months and then turned into a crash 1987.

it continued the rally for around 11/2 months and then turned into a crash in october 1987.

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#7) On June 26, 2009 at 2:25 PM, Option1307 (29.75) wrote:

I like this side of portefeuille. This is a really interesting take and I appreciate you for sharing your thoughts. Good work!

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#8) On June 26, 2009 at 2:27 PM, portefeuille (99.60) wrote:

so our crash is due around December 10th 2009, hehe ...

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#9) On June 26, 2009 at 2:38 PM, rofgile (99.31) wrote:

russiangambit:

  Nasdaq rose until 1990 summer - when there was a large pullback that erased most of the gains from 1987-1990.

  Nasdaq long term, rose exponentially from 1987-2000 crash.

  So, buy-and-hold would have been a great strategy for the Nasdaq from 1987 until 2000.  It would stlll have given good returns if you were buy-and-hold 1987 until 2009.

 

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#10) On June 26, 2009 at 2:42 PM, bigpeach (29.33) wrote:

Why comment when we know you're perfectly capable of having a converstion by yourself?

Though you don't attempt any interpretation, thanks for the post. With all the people saying "this market makes no sense", it's nice to see things like this to remind us, it's not really that strange.

What is it they say is the greatest investing mistake you can make? Believing that this time is different?

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#11) On June 26, 2009 at 3:23 PM, portefeuille (99.60) wrote:

so our crash is due around December 10th 2009, hehe ...

October 5, 1987 (the closing high for 1987) and Thursday, December 10, 2009 are corresponding dates in the charts (Since I am too lazy I did not count the trading days, but took the calender days to find the corresponding day  ...). The fitting curve is at around 1077.55 for December 10.


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So if you insist on getting a prediction. Black Friday this year will be on December 11.

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#12) On June 26, 2009 at 3:31 PM, portefeuille (99.60) wrote:

The fitting curve is at around 1077.55 for December 10.

Maybe I am not the first to do this fit.

Steve Leuthold says "short term correction, 1100 for the S&P 500 before year end."

Kass: S&P 1,050, Then a Pullback

1077.55 - (1100 + 1050) / 2 = 2.55 ...

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#13) On June 26, 2009 at 4:23 PM, russiangambit (29.29) wrote:

The rally doesn't necessarily have to be as long, though the longer it goes the harder it will fall. It just show that when people buy into a positive spin and then suddenly wake up to reality, the fall is very abrupt.

As for 1987-2000 bull cycle, the thing I noticed that during 20th century, adjusted for inflation stocks stayed in a certain range, but then in late 80s there was a quantum leap to a completely new level, and the previous highs became lows of the new cycle. I think it can be attributed to a confluence of several factors : 1. Regan economics, the first time US boldly plunged into spending to speed up economic growth 2. end of cold war, less of spending on non-productive things like military 3. rise of 401K vs. defined pension plans flooding stock market with fresh money 4. demographics - baby boomers reaching their pick earning years.

 All these factors are no longer in place right now, so I see more of a  side-ways market for the next 10 years at least in the best case, in down market (given the amount of government tinkering with the economy) as most likely case.

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#14) On June 26, 2009 at 4:59 PM, portefeuille (99.60) wrote:

As for 1987-2000 bull cycle, the thing I noticed that during 20th century, adjusted for inflation ...

A chart for that is here.

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#15) On June 26, 2009 at 11:38 PM, checklist34 (99.71) wrote:

adjusted for inflation, stocks aren't up since 1965, and only modestly up since 1929 I see.  ...  I bet the NASDAQ, adjusted for inflation, is barely up from its 2000 peak in 50 years too.  Dividends, however, would change that outlook of course, for the better.

when I recently added up historical price/book, price/sales, and price/GDP for the S&P I noticed that the peak of cheapness was frequently in the early 80's.  

Look at this chart for the yield on the 10 year treasury, at the time when prices on the stock market were cheaper than they had ever been, the yield on treasuries was so high (>15% on the 10 year) that it probably simply drew big money away from stocks and into treasuries.

What percentage of investors would opt for the stock market and all of its turbulent spasms when you could get a bank CD paying 13% or a treasury paying 16%?

The enormous returns on treasuries, I hypothesize, shifted the supply/demand curve away from stocks and into "sure thing" investments.  

I think to reach the previous low's in stock valuations we would need to see a similar spike in the returns from "sure thing" investments.  

If inflation is 0% and the yield on treasuries is 2%, then your net wealth gain is 2%/year.  If inflation is 15% and treasuries yield 15%, you just break even.

But despite that fact, I think far more investors would be interested in treasuries at 15% and 0 wealth gain than at 2% and 2% wealth gain.  I don't think the average investor (and remember big funds are the "average" investor) takes inflation deeply into account.  

Absent double digit interest rates, I don't think stocks get as cheap as they were in 1981.  

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#16) On June 26, 2009 at 11:48 PM, portefeuille (99.60) wrote:

adjusted for inflation, stocks aren't up since 1965, and only modestly up since 1929 I see.

I just posted that chart because I did not find a better one within 2 minutes and the "late 80s quantum leap" than russiangambit mentions in comment #13 above can be seen for the Dow Jones index as well.

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#17) On June 26, 2009 at 11:53 PM, portefeuille (99.60) wrote:

For the yield aspect you mention have a look at my comment #21 here.

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#18) On June 27, 2009 at 12:25 PM, BradAllenton (31.46) wrote:

Port, Why S&P vs. Nadq? Just curious. Why not S&P vs. S&P?

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#19) On June 27, 2009 at 12:51 PM, portefeuille (99.60) wrote:

Port, Why S&P vs. Nadq? Just curious. Why not S&P vs. S&P?

goodvibe4ever has suggested the same thing. I might do the S&P vs. S&P chart as well. The advantage of doing s&p 500 vs. nasdaq 100 index is that the fitting functions for those two rallies have similar parameters.

log(p(t)) - log(p(0)) = (1 - exp (-t/c))*1/a * t^b)

(-> fit for the closing values q(t): p(t) = p(0) * exp ((1 - exp (-t/c))*1/a * t^b)), where

a = 14.7, b = 0.34, c = 3 for the nasdaq 100 rally in 1987 and

a = 15, b = 0.37, c = 1 for the s&p 500 rally in 2009.

a would be somewhat smaller for the s&p 500 rally in 1987 because of the lower beta nature of that index vs. the nasdaq 100 index.

 

 

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#20) On June 27, 2009 at 12:53 PM, portefeuille (99.60) wrote:

a would be somewhat smaller ...

a would be somewhat larger (i.e. 1/a would be somewhat smaller) ...

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#21) On June 27, 2009 at 6:11 PM, checklist34 (99.71) wrote:

thanks porte.

I should also offer that, at the march lows, despite the extremely low returns on "sure thing" investments, by some metrics stocks got very close to as cheap as they were in the previous all time low of 1981...  very close.

So on a "fed model" type of basis... comparing any of:

(S&P divi yield)/(treasury yields)

(S&P price/book)*(treasury yields)

(S&P p/e)*(treasury yields)

are all easily at all time lows.  

The valuation of the stock market relative to returns in "sure thing" investments are, hands down, cheaper than they have ever been.  Dramatically so.  

 

Imagine this metric, which I select because i have a spreadsheet open with S&P and GDP data for the last 50 years.  

In the last 50 years, {GDP in billions / S&P year-end-closing price} then divided by ten year treasury yields, in percent, is...

From 1959 to 2007 this averaged 2.03 with a std deviation of 0.4.  The lowes value was 1 at the NasDaq bubble peak (end of 1999, i'm going with year end values here), the highest value was 3.  

Higher in this case implies cheaper.  So the "fed model" basically worked for a really long time.

And its broken now, really broken.  That ratio is at 6 for the end of 2008 and 8 at the march lows.  

So by this metric - the ratio of returns from "no risk" investments to stock valuations the market is at an all time radical extreme.

 

Something is going to give there, big time.  Either stocks will go up or treasury rates will go up, alot, or both.  

But something has got to give.  

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#22) On June 27, 2009 at 10:20 PM, portefeuille (99.60) wrote:


Enlarge

 

 


Enlarge

 

 


Enlarge.

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#23) On June 27, 2009 at 10:52 PM, portefeuille (99.60) wrote:

 

 

 

 

 

 

 

 

 

 

 

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#24) On June 27, 2009 at 11:03 PM, checklist34 (99.71) wrote:

i missed the joke on that one, porte

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#25) On June 27, 2009 at 11:08 PM, portefeuille (99.60) wrote:

1942 - NEW YORK CITY - PIET MONDRIAN

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#26) On June 27, 2009 at 11:15 PM, ARJTurgot (59.44) wrote:

Uh, time for some down time; maybe take a couple of days and then come back to this (but Mondrian is always well received).

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#27) On June 29, 2009 at 9:21 AM, TigerPack1 (97.88) wrote:

When you include dividends all the charts listed on this thread of "inflation" adjusting, look COMPLETELY DIFFERENT.

You simply cannot adjust for inflation if you do not account for 3%-4% in dividends EACH YEAR the last 60 or 80 years!!!

Stocks are "the" best inflation hedge of all financial products, and this has been proven in various social models and economic systems the past 100 years.  Stock returns beat hard assets in total returns over long periods of time also, including gold and silver.  Only similar income producing assets that are leveraged, like real estate, do better than stocks over extensive periods of inflation.

If you want to see a truly ugly chart, look at savings and short-term Treasury returns over a long period of time adjusted for inflation.  The chart slopes down, not up, meaning investors lose money year after year vs. inflation!!!  Few investors in cash right now are prepared for rising rates of inflation.  Real estate and profitable businesses are the place for capital right now, hands down, based on any credible analysis and reasoning.

Versus near zero percent returns (0%-4%) from Treasury bond investments and savings at the bank, I will take a monkey throwing darts in the stock market, earning 9%-10% compounded annually over a period of five or ten years.

Considering we are lifting off a major multi-year bear market low, real world annualized returns from stocks generally and many REITs "will" be +10% to +15% ABOVE THE RATE OF INFLATION FOR MANY YEARS TO COME!

-TigerPack

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#28) On June 29, 2009 at 1:22 PM, portefeuille (99.60) wrote:

I think comment #27 was not meant to appear here.

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#29) On June 29, 2009 at 2:28 PM, portefeuille (99.60) wrote:

update


Enlarge.

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#30) On June 29, 2009 at 2:47 PM, portefeuille (99.60) wrote:

The S&P closing "fair value" (from the green fitting curve) for today, June 29, is ca. 944.98. Current value (intraday) is 925.51.

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#31) On June 29, 2009 at 2:56 PM, portefeuille (99.60) wrote:

The green curve is not meant to be very "exact". This simple fact can be seen from my choice of parameters. The fit (green curve) for the data log (p(t)/p(0))) is 1/15*(1-exp(-t))*t^0.37. It took me about 10 seconds to choose 15 and 0.37 and the choice was done by "looking at it" and "trial and error". So no science involved here!

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#32) On June 30, 2009 at 2:39 AM, camistocks (< 20) wrote:

Ja das war wirklich ein neues Konzept. Ziemlich "speziell"... :-) 

Wie gesagt, Mathe öh was...? 

 

Hey you must be joking, are you really expecting a crash? Personally I don't like comparisons of for example the S&P 500 today vs the Nasdaq back then. I mean, we just came out of a bear market bottom, while in 1987 there was a bull market going on for several years. Sure they look similar, but at one point they will start to move differently. Also Greenspan started to raise interest rates strongly in 1987, always a negative for the stock market. But currently the Fed will leave interest rates very low for a couple of years, my guess, until inflation will pick up.

 

PS Was ist denn das? Ich sehe eine Modelleisenbahn (gemalt)... ?! Cool...( Ja ich bin so einer...:-) )

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#33) On June 30, 2009 at 3:07 AM, portefeuille (99.60) wrote:

no, no crash expected.

I just extended the chart because russiangambit asked about it in comment #4 above.

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#34) On June 30, 2009 at 3:56 AM, camistocks (< 20) wrote:

OK alles klar.

What was the meaning of life again, as per the Hitchhiker's guide to the galaxy? 

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#35) On June 30, 2009 at 3:59 AM, portefeuille (99.60) wrote:

the answer was 42

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#36) On June 30, 2009 at 10:23 PM, camistocks (< 20) wrote:

Yes! 42... The answer to the ultimate question of life, tje universe and everything.... :-)

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#37) On June 30, 2009 at 10:46 PM, russiangambit (29.29) wrote:

It looks like only cami understood the trains thing. Speaking german is a pre-requisite? Is there a correlation between the fireworks chart colors and the trains?

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#38) On July 02, 2009 at 6:57 AM, ttboydxb (29.13) wrote:

Cool post Port, thanks!

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#39) On July 16, 2009 at 1:42 PM, portefeuille (99.60) wrote:

update.



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#40) On July 17, 2009 at 11:06 AM, portefeuille (99.60) wrote:

USDRUB

 



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(The spike in 1998 in not an error, it is the start of the Russian/Asian/LTCM crisis.)

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#41) On July 18, 2009 at 1:30 AM, portefeuille (99.60) wrote:

USDZAR

 



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#42) On July 18, 2009 at 9:40 AM, portefeuille (99.60) wrote:

************************************************************************************

a guide to my blog posts can be found in the comment section to this post

(should be the last comment or close to that)                                                                

************************************************************************************

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#43) On July 23, 2009 at 11:16 PM, portefeuille (99.60) wrote:

update

 



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#44) On July 25, 2009 at 12:34 AM, checklist34 (99.71) wrote:

i don't think another black monday scenario is too likely porte.  no portfolio insurance programs blowing up to cause it this time... 

but the top of your curve is pretty close to my planned hedge-up or exit point.  I will throw a party for any and all caps members who wish to come to my part of the world on that day.  

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#45) On July 28, 2009 at 1:04 PM, portefeuille (99.60) wrote:

update

 

 



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#46) On July 29, 2009 at 11:01 AM, MikeGi (96.70) wrote:

Maybe I missed this somewhere in the other post, but what was the rationale for comparing to the Jan 87 rally/Oct 87 crash?

It seems a more appropriate comparison would be to compare this recovery/rally to the recovery AFTER the Oct 87 crash.

I'd be interested in seeing how this compares to other periods of time as well.  How about the rally in Oct 90? (following the downturn starting in july)

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#47) On August 09, 2009 at 10:44 AM, portefeuille (99.60) wrote:

update

 

 



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#48) On August 15, 2009 at 12:39 PM, portefeuille (99.60) wrote:

update

 

 



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#49) On August 18, 2009 at 8:41 PM, portefeuille (99.60) wrote:



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#50) On August 18, 2009 at 8:43 PM, portefeuille (99.60) wrote:

update

 

 

 



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#51) On August 25, 2009 at 1:27 PM, portefeuille (99.60) wrote:

update

 

 

 



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#52) On August 25, 2009 at 1:29 PM, portefeuille (99.60) wrote:



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(from comment #1 here)

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#53) On September 07, 2009 at 1:02 AM, portefeuille (99.60) wrote:

update

 



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#54) On September 26, 2009 at 3:36 PM, portefeuille (99.60) wrote:



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#55) On October 10, 2009 at 1:53 AM, portefeuille (99.60) wrote:

update



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#56) On November 03, 2009 at 2:12 PM, portefeuille (99.60) wrote:

update.



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#57) On November 06, 2009 at 7:49 AM, 129384648 (< 20) wrote:

Was just wondering, what happened to the NASDAQ line? Just curious to see how it matches up now..

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#58) On November 07, 2009 at 1:35 PM, portefeuille (99.60) wrote:

Was just wondering, what happened to the NASDAQ line?

I just posted it in response to comment #4 above by russiangambit.

Just curious to see how it matches up now..

see comment #11 above.

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#59) On November 07, 2009 at 1:37 PM, portefeuille (99.60) wrote:

update.



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#60) On November 10, 2009 at 7:45 PM, portefeuille (99.60) wrote:

update.



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#61) On December 13, 2009 at 1:48 PM, portefeuille (99.60) wrote:

update.



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#62) On December 18, 2009 at 11:29 AM, portefeuille (99.60) wrote:

update.



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#63) On January 01, 2010 at 6:18 AM, portefeuille (99.60) wrote:

update.



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#64) On January 04, 2010 at 4:57 PM, portefeuille (99.60) wrote:

update.



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#65) On January 07, 2010 at 12:57 PM, portefeuille (99.60) wrote:

update.



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#66) On February 05, 2010 at 4:22 PM, portefeuille (99.60) wrote:

update.



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#67) On February 05, 2010 at 4:35 PM, prose976 (< 20) wrote:

Square root is shaping up nicely.  Now that we're back at Dow 10K, everyone has the opportunity to make money between Dow 9,000 and Dow 11,000.  20% is a nice wide spread to play in, so hang on to your shorts, long and hats for an exciting and profitable roller coaster ride.

But you better actively manage your money...otherwise, you'll end up at 0 "zero" at the end of 2010.

Fool on!

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#68) On February 09, 2010 at 11:34 PM, Tastylunch (29.27) wrote:

Black Friday is awfully late this time around!

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#69) On February 14, 2010 at 4:46 PM, portefeuille (99.60) wrote:

update.



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#70) On February 17, 2010 at 3:50 PM, portefeuille (99.60) wrote:

update.
 


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#71) On February 23, 2010 at 6:17 AM, portefeuille (99.60) wrote:

update.



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#72) On February 28, 2010 at 9:12 AM, portefeuille (99.60) wrote:

update.



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#73) On March 04, 2010 at 4:07 PM, portefeuille (99.60) wrote:

update.



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#74) On March 08, 2010 at 2:08 PM, portefeuille (99.60) wrote:

update.



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#75) On March 13, 2010 at 3:29 PM, portefeuille (99.60) wrote:

update.

 


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#76) On March 16, 2010 at 11:53 AM, portefeuille (99.60) wrote:

update.



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#77) On May 07, 2010 at 2:11 PM, portefeuille (99.60) wrote:

continued here.

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#78) On March 10, 2012 at 9:37 AM, portefeuille (99.60) wrote:

S&P 500 index, currently at 1370.87.

(trading day 0 = March 9, 2009, distance between horizontal lines = 100)



enlarge

(from here)

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#79) On March 30, 2012 at 5:32 PM, portefeuille (99.60) wrote:

1408.47.



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#80) On January 04, 2013 at 6:19 PM, AnsgarJohn (99.22) wrote:

Have you read Mandelbrot's books on stocks as well as The Black Swan ? Something tells me you would really like: http://www.amazon.de/Fraktale-Finanzen-Märkte-zwischen-Rendite/dp/3492248616 (also on Kindle in US)

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